Wednesday, March 30, 2011

As the House Financial Services Committee prepares to mark up legislation reforming government-sponsored enterprises and the secondary market form mortgage-backed securities, Senator Richard Shelby outlined a two-tier hearings process in the Banking Committee before drafting legislation. While committed to passing legislation to reform the GSEs, the Ranking Member said that the Banking Committee must first clearly identify the problems the legislation will be intended to solve. Without that examination, said the Senator, the Committee will again yield to the temptation of picking a solution before it has accurately described the problem. Legislation should be driven by facts, he emphasized, not by pre-determined outcomes.

Sen. Shelby proposed that the Committee establish a formal process for considering reform, including a series of hearings that are preceded by comprehensive staff work. First, the Committee should hold a series of investigative hearings to examine Federal housing policy and the housing finance system. These hearings would seek to determine what aspects of the system have worked well and should be retained, as well as which aspects should be reformed. As part of these hearings, the Committee would also examine what caused the failures of Fannie Mae and Freddie Mac.The Committee would next gather proposals for reforming the housing finance system from a wide array of interested parties across industry, academia and the public. The Committee should then commence a second series of hearings examining the costs and benefits of these proposals, directly applying the lessons learned from our first round of hearings.

Once the Committee has identified the problems and researched the potential solutions, the final phase will be the drafting of legislation. Not only is this the proper way to produce legislation on a subject as complex and important as housing finance, said the Senator, it also offers the best chance of forging a bipartisan consensus on legislation.